Malta’s economic growth expected to be highest in EU over next two years

European Commission economic forecast predicts strong growth ahead for Malta, but at a slower pace than in previous years

The European Commission published its autumn economic forecast on Thursday
The European Commission published its autumn economic forecast on Thursday

Malta’s economic growth over the next two years is expected to be the highest in the EU, the European Commission has said.

The Commission’s autumn 2019 economic forecast indicates that Malta’s real GDP growth rate for 2020 and 2021 stands at 4.2% and 3.8% respectively.

GDP growth for 2019 stands at 5%, the second highest after Ireland.

The forecast, published on Thursday, is predicting strong growth ahead for the Maltese economy, but at a slower pace than in previous years.

The country’s economic performance continues to be strong, driven by robust domestic demand.

Following record annual real GDP growth rates of close to 7% in 2017 and 2018, however, Malta’s economy started to show signs of cooling down in the first half of the year, the Commission said.

(Source: European Commission)
(Source: European Commission)

Growth is expected to slow down from the high rates recorded in recent years, as private consumption and export growth moderate.

Employment growth is set to continue, albeit at a slower pace, while the unemployment rate remains at a record low and is expected to remain broadly stable over the forecast horizon.

The recent steady increase in Malta’s labour supply, due to higher local labour market participation and a net influx of foreign workers, has kept wage pressures contained, despite persister labour and skill shortages.

As economic growth slows down, the fast pace of job creation is expected to moderate.

The government is expected to maintain a budget surplus, which in 2019 is projected to decrease to 1.2% of GDP from 1.9% last year. In 2020, the surplus is set to decline further to 1% of GDP.

Strong demand-driven economic growth underpinned by favourable labour market developments is projected to translate into robust tax revenues.

Proceeds from Malta’s citizenship scheme for foreigners, however, are expected to be lower than in recent years.

Current expenditure is projected to grow swiftly in most categories with the exception of interest outlays, which are set to decrease.

A hike in the government’s investment activity will be largely driven by the implementation of EU-funded projects. The public investment-to-GDP ratio is expected to exceed 4%.

Second lowest eurozone unemployment after Germany

In a statement, the government, noting that Malta’s economy is expected to register the highest growth in the EU, also highlighted that the island’s unemployment rate would be the second-lowest in the eurozone for 2020 and 2021.

At 3.5% and 3.6 for 2020 and 2021, unemployment in Malta will be just 0.1% higher than in Germany. The lowest unemployment rate in the EU as a whole is expected in the Czech Republic, which is set to have rates of 2.2% and 2.3% over the next two years respectively.

(Source: European Commission)
(Source: European Commission)

The government said that, while the Commission’s forecast indicates that economic conditions in the EU are expected to deteriorate, economic activity in Malta remained vibrant.

“This means that, although the government will significantly increase public spending, and the 2020 Budget included various measures benefitting the elderly, families and the disabled, the budgetary surplus is expected to remain stable,” the government said.

“In fact, in the next two years, the increase in recurrent public expenditure is expected to be double the European average, while public investment is set to be 1.5 times the eurozone average. Despite this, the European Commission’s experts are predicting that, by 2021, Malta’s national debt is expected to drop to under 39% of GDP,” it added.